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CANNON TRUST SCHOOL III –
Comprehensive Exam Questions,
Answers & Verified Rationales
1. Which business interest creates the MOST liability when held in a trust account with sole investment
authority as trustee?
A) Limited partnership
B) Subchapter S corporation
C) C Corporation
D) General partnership
General partnerships expose trustees to unlimited personal liability for partnership obligations, including
acts of other partners, making them the most dangerous asset to hold in a fiduciary capacity.
2. What is the LEAST likely determinant when accepting or declining a new trust account?
A) Type of assets to be accepted
B) Document under which the bank will serve
C) People involved as grantors and beneficiaries
D) Account load of the average administrative officer
Administrative staffing levels, while operationally relevant, are not a primary fiduciary consideration
when determining whether to accept a new account; fiduciary duties and risk factors take precedence.
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3. When a charitable trust's purpose becomes obsolete, what is the appropriate action?
A) Pay income to a similar charity chosen by the trustee
B) Pay income to the state tax collection agency
C) Select any worthwhile charity
D) Petition the court for instructions under the Cy pres doctrine
The cy pres doctrine allows courts to modify charitable trusts when the original purpose becomes
impossible or impracticable, ensuring the donor's charitable intent is preserved as closely as possible.
4. What does the acronym NIMCRUT represent?
A) Net Income with Makeup Charitable Remainder Unitrust
B) Non-Income Monetary Charitable Remainder Unitrust
C) National Investment Management Charitable Remainder Unitrust
D) Net Income Maximum Charitable Remainder Unitrust
NIMCRUTs allow trustees to pay out only net income when trust income is insufficient, with the ability to
make up unpaid distributions in future years when income increases.
5. What does STANCRUT stand for?
A) Standard Charitable Remainder Unitrust
B) Stable Charitable Remainder Unitrust
C) Strategic Charitable Remainder Unitrust
D) Statutory Charitable Remainder Unitrust
STANCRUTs require payment of a fixed percentage of the trust's fair market value each year, regardless
of actual income earned by the trust.
6. A client may avoid or minimize AMT liability most effectively by:
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A) Maximizing trust or estate income
B) Minimizing income from passive activities
C) Using a home equity loan to pay for a vehicle
D) Taking the standard deduction
Passive activity income is a significant AMT preference item, so reducing it directly reduces exposure to
the alternative minimum tax.
7. Under the USA PATRIOT Act, a financial institution is NOT required to establish:
A) Written client identification programs
B) Formal ongoing employee training programs
C) A tracking system to demonstrate compliance
D) Due diligence procedures for foreign institutions
While institutions must maintain compliance programs, the PATRIOT Act does not specifically mandate a
tracking system as a separate requirement from existing CIP and due diligence obligations.
8. Regulation 9 prohibits an employee or officer from:
A) Serving as co-trustee with another bank
B) Serving as co-trustee with his employer bank
C) Acting as trustee on a trust for a non-family member
D) Receiving compensation for acting as co-trustee with his employer bank
Regulation 9 prohibits bank employees from receiving additional compensation for fiduciary services
performed alongside the bank, preventing conflicts of interest and double-dipping.
9. Which describes the bank's ability to invest fiduciary accounts in its own mutual funds?
A) Governed by OCC Regulation 9
B) Bank cannot invest in its own mutual funds
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C) Must collect both advisory and management fees
D) Must look to trust instrument, statutory authority, or beneficiary consent
Banks may invest in proprietary funds only when expressly authorized by the governing document, state
law, or with informed beneficiary consent to avoid self-dealing.
10. When a probate court approves a decedent's final accounting, it issues:
A) An inventory
B) Letters of authority
C) An affidavit of domicile
D) An order of distribution and termination
This order formally closes the estate, approves the accounting, and directs distribution of remaining
assets to the proper beneficiaries.
11. What is the most important consideration in creating a trust?
A) Tax consequences
B) Age of the grantor
C) Number of beneficiaries
D) Marital status of beneficiaries
Tax implications affect trust structure, funding decisions, distribution timing, and overall wealth transfer
efficiency more than any other single factor.
12. A client with a $50M revocable trust and marital/credit shelter trusts is terminally ill. His DPOA has
broad gifting powers. The transfer is:
A) Qualified disclaimer
B) A taxable gift
CANNON TRUST SCHOOL III –
Comprehensive Exam Questions,
Answers & Verified Rationales
1. Which business interest creates the MOST liability when held in a trust account with sole investment
authority as trustee?
A) Limited partnership
B) Subchapter S corporation
C) C Corporation
D) General partnership
General partnerships expose trustees to unlimited personal liability for partnership obligations, including
acts of other partners, making them the most dangerous asset to hold in a fiduciary capacity.
2. What is the LEAST likely determinant when accepting or declining a new trust account?
A) Type of assets to be accepted
B) Document under which the bank will serve
C) People involved as grantors and beneficiaries
D) Account load of the average administrative officer
Administrative staffing levels, while operationally relevant, are not a primary fiduciary consideration
when determining whether to accept a new account; fiduciary duties and risk factors take precedence.
,2
3. When a charitable trust's purpose becomes obsolete, what is the appropriate action?
A) Pay income to a similar charity chosen by the trustee
B) Pay income to the state tax collection agency
C) Select any worthwhile charity
D) Petition the court for instructions under the Cy pres doctrine
The cy pres doctrine allows courts to modify charitable trusts when the original purpose becomes
impossible or impracticable, ensuring the donor's charitable intent is preserved as closely as possible.
4. What does the acronym NIMCRUT represent?
A) Net Income with Makeup Charitable Remainder Unitrust
B) Non-Income Monetary Charitable Remainder Unitrust
C) National Investment Management Charitable Remainder Unitrust
D) Net Income Maximum Charitable Remainder Unitrust
NIMCRUTs allow trustees to pay out only net income when trust income is insufficient, with the ability to
make up unpaid distributions in future years when income increases.
5. What does STANCRUT stand for?
A) Standard Charitable Remainder Unitrust
B) Stable Charitable Remainder Unitrust
C) Strategic Charitable Remainder Unitrust
D) Statutory Charitable Remainder Unitrust
STANCRUTs require payment of a fixed percentage of the trust's fair market value each year, regardless
of actual income earned by the trust.
6. A client may avoid or minimize AMT liability most effectively by:
,3
A) Maximizing trust or estate income
B) Minimizing income from passive activities
C) Using a home equity loan to pay for a vehicle
D) Taking the standard deduction
Passive activity income is a significant AMT preference item, so reducing it directly reduces exposure to
the alternative minimum tax.
7. Under the USA PATRIOT Act, a financial institution is NOT required to establish:
A) Written client identification programs
B) Formal ongoing employee training programs
C) A tracking system to demonstrate compliance
D) Due diligence procedures for foreign institutions
While institutions must maintain compliance programs, the PATRIOT Act does not specifically mandate a
tracking system as a separate requirement from existing CIP and due diligence obligations.
8. Regulation 9 prohibits an employee or officer from:
A) Serving as co-trustee with another bank
B) Serving as co-trustee with his employer bank
C) Acting as trustee on a trust for a non-family member
D) Receiving compensation for acting as co-trustee with his employer bank
Regulation 9 prohibits bank employees from receiving additional compensation for fiduciary services
performed alongside the bank, preventing conflicts of interest and double-dipping.
9. Which describes the bank's ability to invest fiduciary accounts in its own mutual funds?
A) Governed by OCC Regulation 9
B) Bank cannot invest in its own mutual funds
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C) Must collect both advisory and management fees
D) Must look to trust instrument, statutory authority, or beneficiary consent
Banks may invest in proprietary funds only when expressly authorized by the governing document, state
law, or with informed beneficiary consent to avoid self-dealing.
10. When a probate court approves a decedent's final accounting, it issues:
A) An inventory
B) Letters of authority
C) An affidavit of domicile
D) An order of distribution and termination
This order formally closes the estate, approves the accounting, and directs distribution of remaining
assets to the proper beneficiaries.
11. What is the most important consideration in creating a trust?
A) Tax consequences
B) Age of the grantor
C) Number of beneficiaries
D) Marital status of beneficiaries
Tax implications affect trust structure, funding decisions, distribution timing, and overall wealth transfer
efficiency more than any other single factor.
12. A client with a $50M revocable trust and marital/credit shelter trusts is terminally ill. His DPOA has
broad gifting powers. The transfer is:
A) Qualified disclaimer
B) A taxable gift
